Pound strongly appreciates (Daily analysis 18.11.2019)

Continued positive sentiments from the end of last week. The dollar is under supply pressure associated with weaker macro data. The zloty is slightly weaker: the GBP/PLN pair has reached its highest exchange rate since May.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• A lack of macro data may noticeably impact the analyzed currency pairs.

Market firmly believes in an agreement between China and the USA

Friday ended with a positive sentiment. The main market indexes reached new historical highs, even though weaker than expected data from the US economy were published. These included data on initial jobless claims, industrial production and retail sales (excluding fuels and vehicles).

Readings from the USA reassure the market that the Federal Reserve will not raise interest rates in the near future, which supports the appetite for risky assets. The market also expects a positive outcome of the trade conflict between China and the USA. However, apart from statements which say that the agreement is "close", we have not learnt the details of the agreement yet.

There was no new information on the aforementioned subject over the weekend, and this positive sentiment spread to this morning as well. Even before the opening of the main European markets, the US futures had reached historic levels. In the morning, the appetite for risky assets was highlighted by the weakness of the so-called safe havens, including gold, silver and the yen. The exchange rate of the Japanese currency against the dollar rose again above 109 boundary. The prolongation of the positive sentiment in the broader market may weaken the yen and contribute to an increase in the USD/JPY exchange rate above 109.5, which would mean the highest level since the last week of May.

On Monday morning, the EUR/USD quotations were close to 1.1070, the highest level in 11 days. However, the weaker dollar and the positive sentiment on the market, which lasted until midday, did not protect the zloty from slight supply pressure. The zloty's basket was slightly weaker in relation to Friday's closing. The EUR/PLN exchange rate rose from slightly above 4.27 PLN to 4.29 PLN and the USD/PLN exchange rate from approx. 3.86 PLN to 3.88 PLN. However, these changes are within the fluctuation range from previous days, and the risk of a deeper depreciation of the zloty is low, especially as the sentiment on the market has been further calmed down by the Bundesbank in its monthly report today. It was stated that there is no fear of recession in Germany, and in the Q4 stagnation will most likely be observed (in Q3, Germany positively surprised with minimal growth). The Bundesbank also added that the slump might be levelling off, as we have already seen in the slightly better-than-expected PMI data.

Pound still appreciates

The British currency was under supply pressure for another day. Before the elections, the leaders of competing parties, Boris Johnson and Jeremy Corbyn, are racing against each other in their very expensive promises aimed at stimulating the economy. The pound was initially appreciating strongly and the weaker dollar today also helped to bring the GBP/USD exchange rate to around 1.2950 in the morning, the highest level in a month. This is a result of information provided by Boris Johnson. According to the British Prime Minister, every Conservative candidate signed a written commitment to support the negotiated Brexit agreement, if he or she is elected. This increases the probability of "delivering" Brexit on January 31st next year. However, the fate of the British currency from now on may not be clear. The UK is facing trade negotiations with the EU, which could bring back significant fluctuations in the pound's quotations.

It seems that the rapid pound's appreciation is now slowing down and the uncertainty surrounding the upcoming elections (December 12th) may put some pressure on its quotations. Today's stronger pound contributed to an increase in the GBP/PLN exchange rate to about PLN 5.03, which is the highest level since May. However, the probability of exceeding the level of around 5.0770, last observed in April 2017, is now limited and may become a limitation for this currency pair in the coming weeks.